Fees, Commissions, and Being a Fiduciary

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When shifting from one financial advisor to another, there are many questions that you should be asking. However, there are two main questions, which we’ll be covering today in great detail:

  1. What are your fees and commissions?
  2. Are you a fiduciary?

Fees and commissions are going to be tied into the advisor’s offering in some way, so you must know how your advisor is being paid. Choosing the right financial advisor is a process, and you need to really have a firm understanding of fees, commissions and being a fiduciary to safeguard your retirement.

What are Your Fees and Commissions?

Fees have been a central focus point of big brokerage companies like Charles Schwab and TD Ameritrade. The entire industry has been in a “fee” war where they’ve tried to compete in the fee department with each other, and fees fell.

For you, lower fees are always a good thing.

Transaction costs have also practically disappeared due to the increased focus on lowering fees and costs for investors.

When working with a financial advisor, you want to know many things, but today, we’re focusing on fees. You need to understand how your advisor is being paid. Many people come into our office and explain that they don’t know all of the fees and commissions that their advisor uses.

It’s essential to:

  • Ask your advisor about their fee structure and commission
  • Dive deeper into the advisor’s fees and commission if your questions make them uncomfortable or they seem to want to dodge your questions

Since you’re hiring an advisor to work on your retirement plan, it’s your right to know how they’re being paid. We would advise against working with an advisor who doesn’t want to divulge their fee structure and commission.

There are a few ways that your advisor can be paid:

Commissions

Commissions are a form of payment that has been around for probably the longest. Commissions are made when products are sold and also in the investment world. Originally, brokers needed to be contacted to make trades and would earn commission on these trades. 

You can buy stocks without commissions in today’s investment world. 

Mutual funds often have fees and commissions on the front-end or back-end, meaning your broker makes a commission at the start or end of the investment. 

You have every right to ask your advisor whether they’re receiving a commission on your investments in any way.

Fees

Advisors can charge fees in a variety of ways:

  • Hourly: An hourly fee may be applied when the advisor works on your portfolio or completes certain tasks.
  • Flat-fee: A flat fee may be assessed for things such as helping transfer your accounts or setting up your investment portfolio.
  • Percentage of assets under management: Finally, a percentage fee may be assessed based on your portfolio’s value. For example, a 1% fee may be charged on your $100,000 investment account, or $1,000.

Advisors may also charge a combination of the fees above. 

For the most part, advisors that charge fees will not make a commission. However, if insurance products are included, a commission may be assessed.

As someone looking from the outside, it’s common to think that the lowest fees are the best. But that’s not always the case. You need to look at the services that are wrapped into the fees to really understand the value in a service.

You might pay a 1% commission for a very hands-off advisor or 1.25% for an advisor who also assists with tax planning and other aspects of financial planning. It’s vital that you ask your advisor what their fees are and what’s included in their fees to know exactly which services you’re receiving.

Are You a Fiduciary?

A fiduciary is very important to understand when working with any financial advisor. You should be asking if the advisor is a fiduciary, but before you do that, it’s important to know what being a fiduciary really means.

What is a Fiduciary?

A fiduciary has to make decisions that are in your best interest. Therefore, certified financial planners must uphold a fiduciary standard. For example, let’s assume that the advisor makes a 10% commission on a specific type of insurance and a 5% commission on the other.

Someone who does not abide by a fiduciary standard would enrich themselves by recommending the product that gives them the most commission, even if that’s not the best product for you.

However, when an advisor is a fiduciary, they need to consider your best interests, even if that means lower commissions for them.

We run as a fiduciary, and our business is founded on:

  • Learning about a client
  • Understanding the client’s goals
  • Recommending the best options for the client to reach their goals

Not only does a fiduciary have to work in your best interest, but they need to be able to prove this in the future. If a client questions why we recommended a specific financial product, we must explain why and show proof that this product was the best based on our knowledge and their goals.

Legal vs. Assumed Fiduciary

Some advisors work on legal and assumed fiduciary duties. Suitability is one way that the advisor may work, and this means that they need to offer a suitable recommendation. In the world of suitability, the advisor can recommend a higher commission product if it suits your needs.

Assumed fiduciary is also an option, and this means that the advisor will do their best to work in your interests, but they’re not legally bound to do so.

Finally, there are legally bound fiduciaries, which we believe offers the best option. There are two times when a financial advisor must be a fiduciary:

  • Certified financial planners are obligated to be a legal fiduciary to hold their CFP designation.
  • Licensing is another time when an advisor may be a legal fiduciary. For example, if an advisor is Series 65 licensed, under FINRA, they’re bound by law to hold a fiduciary standard.

You should be asking your financial advisor about their fiduciary standards and whether they uphold them. You should also ask about licensing so that you have peace of mind that if they’re Series 65 licensed, they’ll work in your best interest.

Fiduciaries Must Disclose Things That May Be a Conflict of Interest

For example, let’s assume that I have a partnership with an attorney where I make money or some form of compensation from the attorney. A fiduciary must disclose this information and allow you to decide on your own.

We’re seeing many clients who are moving to independent financial advisors because of the fiduciary standards they uphold. So, let’s assume that you work with someone at Nationwide. The agent will recommend products that the company offers.

Independent financial advisors aren’t required to recommend specific products.

The Nationwide representative would recommend their own products, even if it’s not necessarily the best option available. Independent financial advisors, like ourselves, can recommend a wealth of products, whether that means the product is from Nationwide or someone else.

Did you enjoy this article? Then, we recommend signing up for our podcast, where we discuss topics just like this twice a week.

Click here to sign up for our podcast today.

What Should You Consider If Your Spouse Passes Away?

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No one wants to think about what would happen if their spouse passed away. Death is a difficult topic to discuss, but it is an inevitable reality for all couples. It’s important that you and your spouse have peace of mind that if either of you dies, the other has a plan in place that allows them to live the best life possible.

We’re going to help you think through the ideas and questions that will be helpful if your spouse dies.

If or when your spouse dies, your mind will be in a million places at once. Grief, fear and anxiety will overwhelm you. Having a general idea or checklist that can help you through this challenging time can really make it easier for you to overcome a spouse’s death.

You can’t be 100% prepared for death no matter how hard you try, but a checklist and guidelines can certainly help make the impact a little less intense.

A few of the things to consider are:

6 Things to Consider If Your Spouse Passes Away

1. Cash Flow: From Two Incomes to One

Income is a primary concern for most people, even if you’re both retired. We see many cases where one person is still working and passes away, and even times when both spouses are retired and one dies.

The main issue is cash flow because:

  • Maybe the deceased was collecting a pension with no survivorship attached.
  • Perhaps one spouse was still working and generating income and passes away.
  • You’ll lose one source of Social Security income if you’re both collecting. Instead, an adjustment is made where you’ll receive the higher person’s benefits.

Your standard of living can drastically change if your spouse dies and you lose some of these sources of income.

2. Expenses: The Key to Life Without a Spouse

When couples think of retirement planning, they think of retiring together. Most people will plan for:

  • Two sources of income
  • Two sources of expenses

However, even if you’re losing one or more sources of income, expenses will also be less. It’s vital for you to fully understand your expenses when retirement planning as a married individual and a couple.

For example, when your spouse passes on, you may no longer need to pay for:

  • Country club fees
  • Two vehicle payments/insurance
  • Certain medical bills
  • Etc.

Once you know your cash flow and expenses, it will be a lot easier to breathe if the worst happens.

It’s crucial for you to also know where all of the bills are coming from. You have to continue living, and it’s vital to keep these bills current.

3. Estate Settlement Issues

You’ll need to do a few things to your estate if your spouse dies. One thing that comes to mind is an IRA in your spouse’s name. The IRA will need to be retitled when your spouse passes. You may be able to:

  • Become an inherited IRA
  • Be taken over if you’re a spouse

When you take over a spouse’s IRA, you’re effectively rolling your spouse’s IRA into your own. You have to go through the steps to:

  • Change joint accounts to single accounts
  • Take certain accounts and change them to your name

Many accounts may need to be properly transferred to a surviving spouse.

In terms of estate tax, there are fewer issues today than in the past, but with larger estates, it can be challenging to keep track of all property. You might need to:

  • Look through credit card statements
  • Identify certain accounts
  • Locate assets

Because your spouse passed away, you’ll also need to look through your estate plan. Perhaps you wanted certain assets to pass to your spouse, but now that they’re gone, you’ll need to consider what happens to these assets.

4. Insurance Accounts and Benefits

Insurance is a major concern because your spouse and you can have a variety of accounts. You need to be able to:

  • Name accounts
  • Know where accounts are
  • Know how much is in these accounts
  • Etc.

You need to identify and know where all of these accounts are when your spouse passes. It’s essential to keep a running list of these accounts and how to access them. Ideally, when your spouse is alive, you should begin making a list of these accounts so that the surviving spouse can access them.

Insurance and death benefits may come from:

  • Employers that offer group life insurance if they’re a larger company.
  • Veteran benefits for death and burial.
  • Pension survival benefits with certain clauses.
  • If you have a dependent or child under the age of 18 at the time of your spouse’s death, Social Security may have certain benefits available to them.
  • Life insurance policies that may be open.

Insurance is a significant asset when retirement planning because it allows you to have an influx of cash that your spouse will need upon your demise.

5. Taxes

The IRS wants their money no matter the circumstances that you’re personally facing. You may have filed your taxes a certain way when your spouse was alive, but this can abruptly change when they die.

Your house may generate a gain if you sell it.

Provisions need to be thought through thoroughly. This is a major consideration, and we recommend going to a CPA. A CPA will cost a few hundred dollars, but they’ll help you understand your tax obligations and how your tax situation might have changed.

6. Assets and Investments

When you secure your retirement, you’ll notice that you’ve acquired a lot of assets and made numerous investments throughout your marriage. These investments need to transition to you as a survivor.

There may be tax concerns with these assets being transferred to you, so a CPA can help here, too.

A few of the accounts and investments that people may have questions about are:

  • IRAs: If they’re set up properly, the IRA can often be transferred to the surviving spouse without an issue.
  • Stocks: A step up in basis may be leveraged to save you money in taxes.
  • Businesses: Will you continue the business, or is there a succession plan in place? How about the sale of the company and the tax implications that follow?

You may have annuities and other investments that need to be considered. We recommend speaking to a financial adviser or planner to discuss your risk tolerance without your spouse.

Often, your retirement plan will have more risk with two spouses, but now that one spouse is gone, it may be time to reduce these risks.

Thinking of life without your spouse is something no one wants to do, and we’ve made a checklist to help you walk through these things to consider.

The checklist is completely free, but we need to know how to send it to you.

We can send the list either through email or regular mail – it’s up to you.

Call us today to request your own checklist to help you understand what to do when your spouse dies.

4 Costly Misconceptions About Retirement Planning

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We work with many clients who come to us for their retirement planning, and many of them have misconceptions about the process and how it works. So, we’re going to outline a few of the most common misconceptions that many people – maybe yourself – have about retirement planning.

4 Retirement Planning Misconceptions That Need to be Put to Rest

1. “Financial Planners” or “Financial Advisors” Must Be Qualified

Many people have the words “financial planner” or “advisor” next to their name, but that doesn’t mean that these individuals are particularly qualified to do their job. 

Why?

Anyone can say that they’re a financial planner or advisor, and even though they’re not “supposed to,” that doesn’t mean that they don’t lure in clients this way. For example, insurance agents can call themselves:

  • Financial advisors
  • Financial planners
  • Retirement planners

But all that these individuals have access to are insurance products. Insurance products are a good option to secure your retirement, but they’re not enough for a well-rounded retirement portfolio.

Yes, these individuals can call themselves financial advisors, but they won’t provide the intensive products you need to retire comfortably. Retirement demands a robust portfolio that includes insurance products, stocks, bonds and so much more.

2. The Lowest Fees are the Best Solution

Are you focusing only on the lowest fees? If so, this may be a mistake. There are many justifiable fees and cutting these fees down may do you more harm than good. For example, the lowest fees may lead to:

  • Less hands-on recommendations
  • Autopilot portfolios with no active management
  • Etc.

Robo advisors, for example, are low-cost opportunities to invest, but you miss out on the true portfolio customization and altering that a human advisor offers.

Low-cost advisors may not:

  • Help you grow your money
  • Have the expertise for retirement planning

In the insurance world, fees are often not seen, so they’re promoted as having “no fees.” However, the fees are really built into these products, and the advisor is being paid a commission on these products.

When we work on your portfolio, we have a risk management portfolio in place that fights back against market fluctuations. For example, we didn’t see our clients lose 38% in 2008 when the market crashed.

We actively update portfolios to mitigate these potential losses.

Would you rather pay a fee to reach your goals, or have no fees and sacrifice risk mitigation? It’s something to think about.

A good option is to:

  • Learn what your goals are
  • Discuss your goals with a potential advisor
  • Then decide if the fees are worth it or not

If you go directly to the lowest fee option, you’re likely putting your retirement more at risk for small savings.

3. All Credentials or Certifications are the Same

Advisors like to list their credentials and certifications next to their names. These credentials help boost their authenticity and stand out when talking to prospective clients. The issue is that unless you’re familiar with the credentials or certifications, you may not know the value behind them.

For example, you won’t know whether the certification requires just a fee and open book quiz, or if it took a lot of time to receive a credential.

One credential that we believe is very valuable is a certified financial planner. You cannot claim to be certified if you’re not. This certification (and for full disclosure, we do hold this credential ourselves) is very valuable.

For someone to be considered a certified financial planner, they must:

  • Take courses at a college for about two years
  • Pass an extensive six-hour exam (50% pass)
  • Three years of full-time experience in financial planning in some way

Once certified, you must also live by the code of ethics and go to continuous education annually to maintain the certification.

We believe the certified financial planner certification is the gold standard for financial planners.

4. An Advisor Works at a Big Firm, So They Must Be Good

Working under a big brand-named company, such as Morgan Stanley, is often the only credential potential clients consider when choosing an advisor. The client assumes that since the expert is working at a major company, they must be the best of the best.

This isn’t necessarily true.

In the investment banking world, these companies have a lot of brand recognition. But working for one of these companies doesn’t mean that the individual is qualified. These companies often have training programs, and the person you initially work with is still learning the ropes.

A lot of younger advisors will go to these big companies out of college, leverage their training and go on to open their own financial planning business.

Independent financial planners are free to:

  • Offer you the best products or services
  • Not force products on a client

For example, if they work for Morgan Stanley, they’ll push the company’s products. This isn’t to say that all these advisors are bad. You can definitely find a great advisor at one of these firms, but consider that independent financial planners are in the fastest-growing advisor category.

So, now that we’ve cleared up a few misconceptions, it will be easier to find an advisor to help you meet your financial goals.

This is part 2 of how to choose the right financial advisor for you. If you missed the first part of this series, we encourage you to click here to read part 1: Avoid 4 Retirement Investment and Planning Rip-Offs.

College Planning Using a 529 Plan

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Are you trying to save money for your child’s or grandchild’s college education? College is expensive and offering any type of help to your loved one will be appreciated. We’re going to be covering college planning using a 529 plan.

What is a College 529 Plan?

A 529 college savings account is a savings account that can be used for a child’s college education and supplies. The plan can be used as early as elementary school if you want the child to go to a private school and pay for it.

Why would you want to invest in a 529 plan?

The account’s earnings will grow tax-free with one caveat: funds in the account must go towards qualified expenses. Qualified expenses cover (for the most part):

  • Room
  • Board
  • Tuition
  • College 
  • Education-oriented expenses

You can withdraw funds out of the 529 plan, pay tuition, and enjoy significant tax-free benefits as a result.

Let’s assume that you want to save for a child being born today. You put $1,000 into the account, and by the time the child is eligible for college, this money is likely to double twice.

For example:

  • You deposit $1,000
  • The money doubles to $2,000
  • The money doubles to $4,000

Every 10 years, these accounts will double – in most cases. The growth in this account is tax-free. Plug in another figure, such as $10,000, and you’ll see that the account grows to $40,000 on its own in 20 years, even if you don’t add another penny into it.

The $30,000 growth is tax-free.

Of course, markets fluctuate, so you can earn more or less, depending on the market.

What Impact Does a 529 College Savings Account Have on Financial Aid Eligibility?

In terms of account ownership, the account is owned by the person who opened the 529 account, usually a parent or grandparent. It is the account opener’s money because they’re in complete control of the distributions from the account.

Children do not have control of the account, so they can’t spend the money on random expenses.

In terms of financial aid, a 529 account will have a minimal effect on the aid. The effect is:

  • Any amount past $10,000 (or close to it) lowers student aid packages
  • 5.64% of the asset value above $10,000 is reduced from an aid package

So, let’s assume that you had $100,000 in the account. In this case, $5,640 would be reduced from the financial aid package.

With the high, tax-free growth rate that some of these accounts achieve, it’s a worthwhile method to save for a person’s college tuition.

Which Investment Options Does a 529 Offer?

The person setting up the account, often a relative, will oversee the account’s investments. You can pick the investments yourself or opt into a lifecycle fund, which is a hands-off method where someone else invests for you.

Owners of the account are in total control of the account and any investments made on the account.

Common Myths and Questions Surrounding 529 College Savings Accounts

If I Don’t Use the Money, I Lose the Money

Many people are under the impression that if the funds in the account aren’t depleted due to the child’s education, they’ll lose that money. That’s not the case. You don’t lose the money. Instead, you’ll have to pay tax on the money earned.

Money isn’t put into the account tax-free – you already paid taxes on it.

However, you will pay a 10% non-education penalty if the funds are withdrawn for purposes not relating to education. You may be able to avoid this penalty, too.

You may open an account with a beneficiary and use the money for another child. As a grandparent, you can name several beneficiaries for whom the funds can be used, even if they were born after the account was opened.

I Can Only Use the Money in the State That the Plan is Sponsored In

Plans are state-sponsored and run with regulations surrounding them. Since they’re sponsored, the fees are very low. 

One common misconception is that if you open a plan, for example, in North Carolina, you must use the account for a child going to school in the state of North Carolina. This simply isn’t the case. The funds in the account can be used for any education-related expenses nationwide.

Accounts can be opened anywhere, so you can live in one state and open a 529 in another state.

For the most part, you can open an account anywhere and go to school anywhere. One advantage that some accounts have is that a few states allow accounts to be opened in their state to deduct the contributions from state taxes.

529 Accounts Will Eventually Disappear

Maybe. We really don’t know the future, but we do know that the Pension Protection Act of 2006 states that these plans will be in place indefinitely. Of course, the government can change this at any time, but the forecast doesn’t seem to indicate that they will remove these accounts in the future.

There is a lot of talk about the burden of high student loan payments and college costs that make it unlikely that a 529 plan would disappear in the near future.

You Can’t Change Plans

You aren’t locked into a plan, so you can change plans if you want to in the future.

How to Setup a 529 Plan

Plans are very easy to set up. It’s just a matter of looking for your state plans and filling in information online. Of course, you’ll need the beneficiary’s information, too. Once you’re done, you can start funding the account.

Major brokers have added 529 plans to their accounts, which makes it easy to get started.

When it comes time to take money out of the account, you’ll need to fill out a form explaining what the funds are used for, and that’s it.

While a 529 plan may not be the right choice for everyone, it’s a smart saving tool for a child’s college expenses. The cost of a college education is ever-increasing, and these plans can help make higher education just a little more affordable.

Are you looking for more great advice on retirement? We’ll walk you through how we’ve helped people, just like you, reach their retirement goals.

Read our new book: Secure Your Retirement Achieving Peace of Mind for Your Financial Future.

Avoid 4 Retirement Investment and Planning Rip-Offs

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Retirement planning is one of the topics that should be on everyone’s mind. When you’re trying to secure your retirement, it’s important to consider rip-offs. There are retirement investment and planning rip-offs that everyone should know about.

4 Retirement Investment and Planning Rip-Offs

1. Fees

Some financial advisors say that they have “no fees,” but the reality is that there are always some types of fees. There are, typically, two types of fees that you’ll deal with, which are:

  1. Flat fee: Often a percentage of the assets being managed.
  2. Commission: Fees aren’t visible to you, but the advisor receives a commission from you investing in certain products.

If the advisor states that there are no fees for their services, it should be a red flag for you. The advisor is in the business of making money, so there has to be fees or commissions being paid.

2. Bait and Switch

A bait-and-switch occurs when someone states that they can help you achieve a certain rate of return that’s higher than the average. For example, let’s assume CDs are offering 0.6% returns, but the advisor or banker states that they’re able to secure a 6% return for you.

How?

You must ask questions. If a rate seems too good to be true, something is off. It’s vital to ask how the interest rate being offered is achieved. There are some offers that are “teaser rates,” and what this means is that during the first year, your rates may be 6%.

After year one, the rate falls back down to a normal rate.

If the advisor states that the financial vehicle offers a 6% or 7% guaranteed return for, say, 10 years, you’re likely being put into a fixed annuity with a rider. The growth rate is based on the interest for the income stream.

What does this mean?

Your income stream from the annuity has a 6% or 7% return, but it’s not something that you can decide to take out all at once.

When rates sound too good to be true, ask more questions. The annuity above is a good product, but if you don’t know that the rate is just for income, you might feel duped. Knowing and understanding the following can help:

  • The overall rate
  • How long the rate will last

Oftentimes, these high rates of return are just introductory rates and won’t be in place forever. Think of credit card offers that aim to have people sign up. Lenders are willing to offer 0% interest for six months or a year to get you to apply. It’s a similar concept here with bait and switch.

3. Outrageous Claims

Rates of return are important if you want to reach your dream of retirement. You need steady, consistent returns to retire. When you’re looking at investment vehicles, there is something called “illustrations.”

These illustrations are claims and may say you can earn 6% – 8% returns.

A fixed annuity may offer these returns on occasion, but that doesn’t mean that you’ll achieve these rates. Illustrations often claim that you can earn rates “up to,” or that others have earned “as much as,” but these are often unique cases.

Chances are, these high rates of returns were very specific cases and aren’t repeatable every time.

Even if an advisor states that they’ve had 10% returns for their clients last year or five years ago, it doesn’t mean that they’ll be able to replicate these returns in today’s market.

Instead, we recommend:

  • Asking for historical return data
  • Really reading the fine print

Outrageous claims are a great way to lure you into a contract or financial vehicle, so be on the lookout for claims that just sound too good to be true.

4. Outdated Beliefs

A long time ago, in the 1900s, there were no regulations in the banking system. When markets fell, customers would go to the bank and start withdrawing their money. The government created the FDIC to support the banking system.

The FDIC is a protection offered to you by the federal government that if the bank goes under, you’ll have protection for your money.

Imagine today, if everyone had the belief of the 1900s, and decided to ignore the FDIC. Some advisors fall into these old beliefs. Just 20 years ago, a lot of people didn’t like annuities and were very much against them.

Today, there are still some advisors stuck in their outdated beliefs that savings in retirement products are bad. 

Holding onto old, outdated belief systems is never a good idea.

Why? 

Offerings change, and the market changes, too. An advisor should look into all financial vehicles and the current state of a financial vehicle today. In the past 20 to 25 years, things have changed and at a rapid pace.

We do recommend maintaining a diverse portfolio of products and would never suggest putting all of your investments into one vehicle. However, there is a time and place for most financial vehicles in a person’s investment portfolio.

Wrapping Up

If there is one take away from the points above, it’s that you really need to take control of your retirement planning. Educate yourself on investment options and don’t be afraid to question how a certain financial product is able to offer substantially higher returns than average.

It’s your money, and you have every right to ask questions to safeguard your retirement.

Do you want more expert advice on how to secure your retirement? 

Listen to our podcast where we discuss retirement planning twice a week, every week.

Social Security Strategies

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Some of the most common questions we receive are related to social security strategies. A lot of people rely on social security to help secure their retirement because it is a source of income that can help you pay for your day-to-day expenses.

But it’s still a confusing topic when beginning with retirement planning because you’ll find a lot of different opinions.

If you’re wondering when you should take your retirement, grab a cup of coffee and continue reading.

When Should You Retire and Take Social Security?

One of the first questions we receive from clients is when to take social security. A lot of people try waiting until they’re 70 to retire so that they can receive the maximum benefits social security has to offer.

The problem is that this advice is based purely on the financial aspects of retirement and not your current situation.

You have a lot to consider, especially if you have a spouse, such as:

  • Age disparity between spouses
  • Health
  • Ability to work
  • Sources of income

For a lot of people, over 50% of their income in retirement is going to be social security, so it may make more sense to retire at 70 to maximize those benefits. The problem is that it’s not always that simple.

If one spouse is a lot younger and is still working and plans to continue working, retiring early may be the best option.

What to Think About If You Take Social Security Before Full Retirement

If you’re planning on taking social security before your full retirement, there is quite a bit to think about. You should be thinking about the following:

Is someone still working? 

If the person is still working, there is a limit to how much they can earn while on social security. For example, in 2021, if you make more than $18,960 during the year, the amount over the limit will result in 50% of the overage being deducted from social security.

This can be confusing to understand, but what it’s essentially saying is that:

  • You earn $28,960 ($10,000 over the limit),
  • $5,000 (50% of the overage) will be withheld

When trying to plan for income, it can be difficult because the withheld amount may mean a three-month gap between benefits being paid.

Spouse earnings will not impact you in this situation.

Is there an issue with permanent reduction?

Your benefits will be reduced permanently once you opt into social security early. It’s important to realize that when you hit full retirement age or 70, your benefits will not go up. Your choice to take social security is final.

Taxes

If a spouse is working and you’re taking social security, it’s important to consider taxation. You must plan for taxes because they will be a financial burden that is difficult to overcome. 

Restricted Application and the Potential Benefit It Offers

If you were born before January 1, 1954, you are eligible to use a restricted application. This is a strategy that allows you to file for spousal benefits first and restrict the application to the spousal benefits only.

What this means is that the person isn’t choosing to use their own social security benefits at this time, so they can effectively wait until they are 70 to maximize their benefits.

If you plan to wait until age 70 and meet the birth requirements, this can really be a beneficial option for you. It’s important to note that your spouse will need to already be on social security or plan to retire before your restricted application is filed.

Let’s take a look at an example:

  • One spouse is on social security that is $2,000 a month.
  • You file a restricted application and receive 50% of your spouse’s benefits, or $1,000.

You can continue taking the $1,000 while your own social security will continue to grow. And you can also, in some cases, claim six months of retroactive benefits.

How Spousal Benefits Work

While spousal benefits are 50%, it’s based on the primary person’s insurance amount. Let’s assume that the person is earning $3,000 on social security, this doesn’t mean that the spousal benefit will be $1,500.

The insurance amount may be $2,400, and the spouse would then receive $1,200.

If the dependent spouse, or the one taking spousal benefits, will also factor into how much the person receives. Why? The dependent spouse’s filing age will be the deciding factor in whether they receive the $1,200 or not.

For example, if the dependent filed at 60, the $1,200 may be reduced by 30%.

Reductions can be as high as 35%.

It’s very challenging when trying to secure your retirement because the social security office will not help you. Why? They’re prohibited from providing advice to you. You will need to work with someone who can help you navigate social security.

Note: You need to be married for 10+ years to receive these benefits.

What Happens If the Higher Earning Spouse Passes Away?

When one spouse passes on, the remaining spouse will receive 100% of the highest benefit amount between both spouses. You won’t be able to receive your benefits and survivor benefits.

Instead, let’s assume, using the scenario above, that the one spouse passes away and leaves the dependent spouse behind.

In this scenario, the dependent spouse can claim the $3,000 in benefits. 

But as with everything related to social security, the age at which you start collecting benefits will matter, too.

You will also receive the delayed retirement credits from the deceased spouse.

Note: You can also collect 50% of an ex-spousal benefit if you were to divorce rather than the one spouse passing on. If you remarry, the benefits will stop. But if the person dies and you don’t remarry until 60 or older, you can still take survivor benefits.

When to File for Social Security If You Know What Age You Want to File

You know what age you want to start taking your social security benefits, but now you need to know when to actually file. Filing should be done 3 to 4 months before you want to receive your first benefit check.

The easiest way to do filings is to use the online portal to apply.

When filing online, be sure to reiterate your plan in the remarks section to ensure that errors do not occur. This is especially important when filing for a restricted application to avoid any processing errors on the side of the Social Security Administration.

There’s a lot to think about figuring out social security strategies for your situation. Sit down with someone and really discuss your options because you may be missing out on key benefits that you can claim.Have you heard our latest podcasts? If not, we encourage you to join our podcast today for access to more than 90+ financial and retirement-related talks.

What Happens to My Money if Something Happens to My Advisor?

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Financial advisors can help you invest and manage your money. An advisor helps clients reach their long-term financial goals and often play an integral part in the retirement planning process. 

But there’s one question many clients have: what happens to my money if something happens to my advisor?

Your advisor opens your accounts, sends you reports and provides a hands-off way to secure your retirement. If these individuals die or become incapacitated, your money will still be safe and will still be your money.

What Happens to My Money if My Advisor Retires, Gets Sick or Dies?

As an advisor, 90% of our clients ask us this very question. It’s an excellent question to ask, and it’s one that we want to clear up for you. No matter who you’re working with, the logic and answers will be the same across the board.

But before we get too far ahead of ourselves, it’s crucial to have a firm understanding of where your money is held.

Understanding Where Your Money is Held

When you work with us or any independent financial advisor, your money never enters our bank account. In fact, our name is never on the checks that you write. Instead, you assign us as an advisor on your account.

A third-party custodian will be where your money is held.

These custodians are massive financial institutions, such as Wells Fargo or Charles Schwab. The custodian will house your money, ensure everything is compliant and facilitate the trades.

As independent advisors, we:

  • Act on your behalf when dealing with a custodian
  • Never actually hold your money

If something happens to your advisor or us, your money will still be sitting in the custodian’s accounts that we created for you.

What Happens When Working with Big Financial Firms?

If you work with a big financial firm, you may assume that if your advisor is no longer working with the firm, you’ll be working with another internal advisor. And you will be working with another advisor, but it’s essential to understand that these firms operate in what’s called “teams.”

Teams have multiple advisors, so if something happens to the leading advisor, you’ll work with someone else in the company.

In fact, you’ll receive a call from your new advisor and will need to decide whether or not to work with the team without the advisor you had. Your money remains in place, and if you choose to leave the team, you can just transfer your money to another advisor.

So, in short: you won’t lose your money and can decide on what to do next with your portfolio.

Common Scenario Questions People Ask

Your money is important to you, and it’s essential to know the answers to common questions regarding your advisor:

What Happens if Your Main Advisor Dies?

First, you’ll get a new advisor. But the process will go something like this. You’ll receive a phone call and the new advisor:

  • Will explain that they have been assigned to your account
  • Likely have you come into the office to learn about him/her

You should ask to meet the advisor and go through the initial decision stages again, just like you did when choosing your original advisor. What this means is that you’ll want to:

  • Talk to the advisor and see whether your personalities match
  • Understand the advisor’s investment philosophy
  • Decide if the philosophy is good for you

If you’re working with teams in the same office, you can be relatively confident that their philosophies will match. You won’t even need to worry about the investment strategy if working with an advisor from the same team.

This is the best-case scenario.

When working within the same team, your biggest concern will be whether the new financial advisor is a good fit for you. If the advisor isn’t a good fit, you can switch to another member within the same team.

What Happens If Your Financial Advisor Retires?

Retirement scenarios are a little different than if someone quits, gets sick or even dies. If an advisor is retiring, they’ll let their clients know well ahead of time. There is a lot of planning that goes into the retirement process, so you have many options as a client.

Your advisor can also choose to retire and:

  • Sell their practice, in which case, you can begin working with the new team.
  • Let the current in-house team take over the account. The long-term advisor leaves, but you continue working with the team that you’ve known for years.

If you’re concerned about your advisor leaving, it’s important to ask about their continuity plan for your team. You can ask your current advisor this question and ask this question when looking for an advisor.

Most advisors will have a plan in place to help you transition if they get hit by a bus tomorrow.

And a lot of people will shop for a new advisor when they know that their name advisor is going to retire.

We’ve had potential future clients come into our office, vet us thoroughly and explain that they plan to stick with their current advisor until that individual retires. You can follow this same concept because, at the end of the day, it’s your money that a new advisor will need to handle.

You’re not restricted to working with just the team that your old advisor built either.

Final Note

You’ll work closely with an advisor, build trust and hopefully make a lot of money together. Then, if your advisor is hit by a bus or decides to quit tomorrow, there will be someone that can confidently fill their shoes.

Often, you’ll have the option of working with the advisor’s team that they were a member of to make the transition as fluid as possible. And in all cases, you’ll still have all the money you invested accessible to you.

Want to learn how you can secure your retirement? We have two great resources that we just know that you’re going to love and benefit from.Click here for our 4 Steps to Secure Your Retirement Course or listen to our Secure Your Retirement Podcast.

Tax Strategies for Non-IRA Brokerage Accounts

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Tax strategies come into play a lot in retirement planning. Retirees, or future retirees, want to keep as much money in their pockets as possible, and strong tax planning can do just that. When dealing with non-IRA accounts, such as a brokerage account, you’ll even receive a 1099, which takes a lot of people by surprise.

We’re going to walk you through a strategy that will outline taxes on brokerage accounts.

Taxes on Brokerage Accounts or Non-IRA Accounts

An IRA is the ideal way to not have to pay taxes, but these accounts are limited. Most people will have a brokerage account of some form created to leverage other financial investments. Understanding how a brokerage account is taxed is the first step in really understanding how these taxes work.

How Taxes on a Brokerage Account Work

When you have a brokerage account, whether it be Charles Schwab, TD Ameritrade or others, taxes always work the same. Brokerage accounts are often opened when you have money in the bank that really isn’t working for you.

You want to make this money grow, so you open a brokerage account and start investing in stocks, mutual funds and other financial vehicles.

As the money grows, you’ll have gains.

With brokerage accounts, or a non-qualified account, you’ll be paying taxes on the gains in the account. Let’s assume that you put $100,000 into the account and now you have $200,000 in the account, or $100,000 in gains.

There are a few things that can happen here in terms of taxes:

  1. If dividends are paid and then reinvested, you’ll still receive a 1099, which means you’ll have to pay taxes on these dividends even if you simply kept investing the money you were paid out.
  2. If you own stock and then sell it, you’ll generate a taxable gain on the sale of the stock. There are two main ways that these gains will be taxed:
    1. Short-term: If you hold the stock for less than a year, you’ll pay a short-term capital gains tax, which is in your income category.
    2. Long-term: If you hold your stock for a year and a day, or longer, you fall into the long-term capital gains category. This is favorable, right now, because you’ll pay a lower tax rate. You can view the tax rate on the IRS’ website, but as of right now, you would be taxed at a rate of 15%[1] if your taxable income was $100,000.

We have a lot of clients who are trying to secure their retirement, and they may not want to sell off a stock that they held for a long time due to the tax bracket that they would fall into. This is where it can get tricky for a lot of people when trying to figure out the best time to sell.

There are pros and cons to investment management.

Positives and Negatives with Investment Management

Investment management will often turn into managing risks or taxes. For example, let’s assume that you don’t want to pay taxes on your Tesla holdings, and the stock is booming. You hold on to the stock for years, and natural market fluctuations occur.

Your stock holdings may have been worth 30% more three years ago, but you wanted to avoid paying taxes, so you didn’t sell.

In this case, you managed your taxes rather than your investment and the risk is that the stock went down. You’ll still have to pay taxes if and when you sell your holdings, and you lost significant value in the process.

It’s not an easy conversation to have because no one wants to pay taxes, but there’s no way to avoid them completely.

You need to decide:

  • Do you want to protect your investments?
  • Do you want to shelter against taxes?

We deal with this scenario a lot, and it “sounds” like it actually goes against what we’ve said in the past. But you have to keep reading because this is a strategy that works well if you’re stuck debating on what to do with your brokerage account taxes.

What’s the strategy? A variable annuity.

Yes, we did an entire episode on variable annuities, and we don’t like them personally. Why? You’ll be paying fees of 3% to 5% per year, but then you have to pay additional fees on top of this.

We still wouldn’t put IRA money into an annuity because it doesn’t make sense.

Wait! Is There Really an Option in the Variable Annuity World?

Yes, even though we’ve given you a bunch of negatives to think about with these variable annuities, this is one of the rare circumstances where they may have some benefit. We’ve found a positive in variable annuities when you don’t want to pay capital gains taxes.

Why?

Your goal is to save on taxes and not have to pay taxes on the brokerage account. We want to be able to alleviate the tax gain while protecting it, too. The simple plan is to put your money into a tax-sheltered product like an annuity.

In this case, you can:

  • Avoid surrender charges
  • Avoid having to pay commission
  • Liquidate the fund immediately

The only thing that you will have to pay is a $20 monthly fee. You only need to think about taxes when you make a withdrawal, which can be 10, 15 or even 20 years from now. You can do everything that you can with a brokerage account with this variable annuity.

For a small $240 fee a year with this particular annuity, you can avoid having to pay short-term capital gains or when you need to make withdrawals.

The account can even have beneficiaries that you leave the account to if you die.

If you’re interested in this type of account, please contact us to find out whether it’s a good option for you. Again, not all annuity accounts work in the way that we described above, so this is a special option that we’re using with our clients.

Not sure how to begin to secure your retirement? Click here to access our 4 Steps to Secure Your Retirement Course.

Resources

  1. https://www.irs.gov/taxtopics/tc409 

How to Change Financial Advisors

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If you’ve broken up with your advisor (episode 90 of our podcast), you may be wondering what steps to take to move to another advisor. A retirement financial plan changes and evolves over time, and there are times when moving to another advisor is in your best interest.

There are a lot of reasons to make a switch, and there’s always going to be a move where you transition to your new advisor.

It’s difficult to leave an advisor, but the transition process is rather straightforward.

How to Move from One Advisor to Another

A major question our clients have is what the process looks like when moving from one advisor to another. There are a few ways to make the transition, and don’t worry: your money won’t be lost in transit.

There are a few scenarios that can play out here.

Your New Advisor is at the Same Place

If your old advisor is at the same place as your new advisor, the process is simple. By “place,” we mean a major institution like Fidelity, Charles Schwab or any other major institute. In this scenario, everything stays the same.

You don’t have to worry about account numbers or information changing.

Instead, you’ll sign a few papers that authorize the new advisor to take the place of your old advisor.

This is a rare scenario, but it is the best to be in.

Your New Advisor is at a Different Place

A more common scenario that we deal with is that a client’s former advisor is at Fidelity and their new advisor is at Charles Schwab. In this case, all of your money needs to move in the process, which is still an easy process.

Not much changes, even the way that you look at your account. For example:

  • Your IRAs will still be IRAs
  • Joint accounts stay joint accounts
  • Etc.

For the most part, things will remain very similar when changing advisors.

Even if you have stocks that you want to hold onto, you can transfer them “in kind.” You don’t have to sell and then rebuy these stocks during the move.

Paperwork Process Required

The custodian (in this case, Charles Schwab) will require paperwork to understand who you are. An application is required, which includes all of your basic information, such as your name, address and so on.

  • If you’re transferring an IRA, you’ll need to list your beneficiaries.
  • Brokerage accounts will need to be set up, and we recommend adding in a TOD, or transfer on death.

Your advisor will walk you through all of these steps and explain what’s taking place. You’re there to sign off on what’s happening and to finalize the transfer.

  • Transfer document. A transfer document will need to be signed, which gives permission to move assets from one custodian to another. For example, if your assets are in Fidelity and you’re moving to an advisor that uses Charles Schwab, you’ll sign this document to allow the assets to transfer. You’ll need to attach a current statement to the document, too.
  • Advisor agreement. Your advisor will want you to sign documents that outline the services that they’ll render. 
  • Risk tolerance document. You’ll likely have to sign off on paperwork involving risk tolerance so that both you and the advisor know what level of risk you’re willing to take.

Note: In 99% of cases, your accounts will transfer over to an identical account with little more changing than the name of the custodian on your account statements.

It’s important to note that your former advisor doesn’t have to sign off on any of these documents. Since you’re changing advisors, not requiring a signature makes the entire process much easier on you.

The advisor will receive a notification of your money moving and that you’re moving to another advisor.

Process After Document Signing

After you’ve signed all of the paperwork, there’s a small waiting period where your accounts open quickly and sit at $0. The transfer process often takes 7 to 10 business days, so during this time, your assets will begin their transfer.

Once everything is transferred, your advisor will then begin looking through all of your assets and start working on making any changes you’ve discussed to reach your retirement goals.

Common Questions When Moving or Starting Work with an Advisor

What if you want to move from one account type to another?

What if you’re not moving from another advisor but you’re moving from a 401(k) to a traditional IRA? In this case, the process often involves a simple phone call and won’t have any tax ramifications involved.

In this case, the 401(k) will send you a check in the benefit of you to the custodian.

So, the check with all of the funds from the 401(k) is sent to you and written out to your custodian. You pass this check to your advisor, and it will now be rolled over to a traditional IRA account.

What if you handled all of your own investments but now want to work with an advisor?

If you have handled all of your own investments, it’s as simple as creating a new account with a custodian and following a similar path as outlined in the “Your New Advisor is at a Different Place” section above.

Moving to a new advisor may be required to secure your retirement. The process itself is easy, and most advisors will walk you through the process step-by-step to get started.

Want to secure your retirement?

Click here to access our 4 Steps to Secure Your Retirement video course.

How to Choose a Financial Advisor After a “Breakup

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You put a lot of time and effort into choosing a financial advisor. An advisor learns all about your financial situation and your future goals. And when it’s time to move on to a new advisor, it can be really difficult.

We’ve had a lot of clients come to us over the years that want to move on to use our services.

But they have an emotional attachment with their current advisor.

It’s difficult to move on to a new advisor when you know the person’s family members or have relied on them for years, but you also know that it’s the right time to move on. For a lot of people, choosing a new financial advisor is almost like breaking up with someone because of that deep, emotional bond that has formed.

Why Break Up with a Current Financial Advisor?

Retirement planning is a very important part of your life. Once you’ve reached retirement age, you’ve either planned properly or you didn’t. You can’t go back and correct past mistakes when you’ve reached 65, 67, 70 – whenever you choose to retire.

For a lot of people, they often feel that leaving a current advisor requires a deep reasoning.

It doesn’t. 

Your advisor is helping you manage your money. If you’re not satisfied with the person’s services or just want to try another avenue, you have every right to do so. You’re always in control of your financial advisor choice.

The most common reasons why people breakup with their financial advisors are:

  • Communication has broken down, or you really never hear from your advisor.
  • You’re simply not happy with the performance or experience you’re having with your advisor.
  • Life changes that occur, and your objectives and goals change.
  • You need an advisor that offers more services or is setup to handle more of your concerns.
  • Advisors change their overall philosophy, and the change isn’t the right choice for you.
  • Your advisor is retiring soon, so you begin looking for a new financial advisor.
  • Your advisor’s team is changing and you’re no longer working with the advisor that you want.

The truth is that you are investing your money into retirement. Your life goals and objectives are either being met or not met with your advisor, and it’s your right to leave an advisor if you want to.

How to Choose a Financial Advisor

When working with clients who want to secure their retirement, we’ve found that communication is the main factor in them no longer working with an advisor. Because communication is key, it’s often best to start here when choosing a financial advisor.

Ask the advisor about:

  • Types of communication
  • Frequency of communication
  • Types of reports or statements provided to you
  • Etc.

If the advisor shrugs off these questions or seems annoyed by them, you know that they don’t take communication as seriously as you need them to.

But there is a lot more to look for in an advisor than just communication.

You also want to consider the following:

  • Are you nearing retirement? If so, working with a specialist who focuses on near-retirement planning is often in your best interest. These advisors will be able to fill in gaps that past advisors may have missed, and they’ll be able to provide guidance that can solidify your retirement.
  • Do they match your personality? Your personality should mesh with the advisor’s personality. When both personalities mesh well, you’ll have a much better experience working with them. An advisor shouldn’t force you or try pushing you into using their services or to convince you that they’re right.
  • Will your advisor help you with goal alignment? You have goals, and the advisor should help you with goal alignment. If you want to keep your risk low and the advisor is trying to push you into a potentially high-risk investment, such as cryptocurrency, you may want to look elsewhere. The advisor should discuss your options and maybe recommend other strategies, but they shouldn’t try pushing you in one direction or another if you’re uncomfortable with their recommendations.
  • Does the advisor take a holistic approach to retirement planning? A holistic approach, for us, means that we look at the entire plan. There’s more to retirement than investing. Holistic approaches consider taxes, Medicare, long-term care, Social Security, estate planning and your goals. 

How to Break Up with Your Advisor

Breaking up with an advisor can be done in a lot of different ways. A lot of people make this a pressure-filled time with anxiety and stress, but breaking up with an advisor doesn’t need to be this complicated.

Instead, you can send an email, call the person or go see them in person.

We recommend that you keep it simple no matter which method of communication you use to break up with your advisor. If you make it complicated or explain why you’re leaving, it can lead to justification and make the entire process more difficult than it needs to be.

Simply say that you’ve chosen to go in a different direction, thank them for their services and explain that your decision is the best choice for your family.

Technically, you don’t even have to do that. You can also opt to move to another advisor with no explanation needed. Your new advisor should be able to access all of your accounts and help you with the entire moving process.

Click here to access our 3 Keys to Secure Your Retirement Master Class for FREE.

Retirement Financial Plan

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Retirement planning has a lot of moving parts, and if you’ve been reading our blog or listen to our podcast (listen here), you know that we’re big on creating a holistic retirement financial plan.

We believe that you should have a retirement plan that is well-put-together and really hits on all of your goals.

How can you create this plan?

With a team.

We’re going to help you start to secure your retirement with a quick overview of what your retirement financial plan team should look like.

Retirement is a Lot Different than Most People Realize

A lot of people think about their retirement briefly while they put money into their 401(k) plans, and a lot of people know when they want to retire and take social security. But when you sit down and get closer to retirement, you’ll realize that there are a lot of moving parts to consider.

Retirement is more than just putting money away, although money plays a big role in retirement.

And when you begin doing your research, you’ll find a lot of advisors to choose from, which can make your head spin. We’re going to discuss the key people that should be involved in your life and can help you retire the way that you want.

Advisors to Hire and Work with to Secure Your Retirement

Advisors help you go well beyond just a 401(k) and saving money. These professionals will assist you with investing your money in many cases. For example, you may have an advisor that works with your employer and will:

  • Assist with asset allocation
  • Invest for you
  • Offer a quarterly report
  • Provide yearly statements

These advisors work with money management, but they fail to look at the whole of your retirement.

We take a holistic approach to retirement. For example, you’ve received a paycheck from an employer, and now that you’ve saved money to retire, it’s time to pay yourself. You have access to this money at any time, but if you’re spending way beyond your means, your retirement buckets can quickly dry up.

An advisor that works to invest your money only isn’t considering how you’ll pay yourself.

You’ve saved and grew your money, and that’s where a lot of advisors stop. They don’t consider how you’ll manage your money after retirement, nor will they continue checking up to understand your goals. As your goals change, your asset allocation should also change.

Money managers grow and build money; not plan for when you want to retire.

Your money manager won’t consider:

Holistic advisors tend to look at your retirement plan as a whole. There’s a lot to consider, so these individuals will discuss your retirement desires with you and help make retirement possible.

Types of Advisors to Work With

You may work with a variety of advisors, including:

  • Money manager or financial adviser. These professionals will be focused on investing and growing your money.
  • Tax advisor. A tax advisor is key because they’ll help you find innovative ways to shelter a lot of the money that you save for retirement so that you don’t have to pay it in taxes. Imagine needing $1 million to retire and not realizing that you owe $250,000 in taxes.
  • Estate planner. An estate planner will help you with ensuring that all of your documents are in order so that if you become incapacitated or want to leave assets to children or family members, you can.
  • Social security specialists. These individuals will help you determine the best time to apply for social security. They’ll also assist you with maximizing your payments by retiring later. 
  • Insurance experts. An insurance expert can help you obtain the best life insurance or health insurance just in case you or a spouse pass on.

No one is a master of all aspects of retirement, but with the right team, it’s possible to bring the collective knowledge of these professionals together in one place.

Working With a Holistic Team

A holistic team, like us, will help with all aspects of your retirement. We always start with your retirement plan, which is an extensive plan that looks at your retirement goals, needs, and the “what ifs” that pop up before and during retirement.

Comprehensive plans can and should be updated annually, and they’re a clear roadmap to your retirement.

Once we have this plan in place, you can sleep better at night. You’ll know what it takes to retire and can follow a roadmap to success.

And since we’re a holistic advisor, we bring in:

  • Tax advisors
  • Social security specialists
  • Other advisors

Your team must look at your goals, and how they change, so that you can confidently enter retirement. Working on just investing your money isn’t enough to retire. Bringing together the right team that offers a holistic approach will look beyond your investment portfolio and really bring everything together, from social security, to tax considerations and so much more.

Click here to sign up for our 3 Keys To Secure Your Retirement complimentary training.

Life Insurance in Retirement

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Life insurance is a complex subject. There are people that will tell you that you need life insurance, and there are others who would rather focus on their retirement planning. And there’s really no wrong or right answer here.

Some people want to leave money to loved ones or spouses, and their way of doing this is through life insurance.

Today, we’re going to discuss life insurance in terms of retirement planning with an objective view. Not every client that we work with will benefit from life insurance, but there are times when life insurance may align with your overall goals.

But before you can really decide on getting life insurance, it’s important to know what types of insurance are available:

  • Term insurance
  • Whole life
  • Universal life
    • Variable universal life
    • Indexed universal life

All of these types of life insurance are important to know about because they have their advantages and disadvantages. If you don’t know these key points, how can you determine if a certain type of life insurance is right for you?

Understanding Term Life Insurance

Term policies are a type of life insurance that is the easiest to obtain. You take out term life insurance for a period of time. Let’s say that you pay into the policy for 10 to 20 years. If you die during this period, the insurance will pay out a death benefit.

With every type of life insurance, death benefits are tax free.

If a beneficiary receives a $1 million payout from your insurance, they don’t have to pay a single penny in taxes, which is very beneficial.

Why Term Life Insurance Makes Sense

Term life policies are cheaper and easy to get started with. A lot of people take out a term policy when they’re younger so that the person’s family can pay their bills or even pay off the house if you die.

You may even receive this type of insurance for free from your employer.

Sometimes, the policy can be expanded when it’s from your employer, which allows you to pay lower rates for even higher levels of insurance.

Underwriting is common, so you will have to take a physical exam to satisfy the insurer. We’re also seeing a lot of insurers online offering term life policies with no underwriting. While no underwriting is beneficial and easy to get started with, the insurer takes on more risk, meaning your premiums will be higher.

Understanding Whole Life Insurance

Whole life is an insurance that is offered until the end of your life. Your policy will pay out a death benefit, and it can also accumulate a cash value. The policyholder can access the cash value of their policy during their lifetime to:

  • Invest the money
  • Borrow against it
  • Withdraw it

When legacy planning, let’s say that you want to leave your two children $500,000 each. You can use your IRA to pay for your whole life policy and leave the money to your children tax free.

The cash value of the whole life policy is very beneficial because you’re able to use the cash value you build. 

Understanding Variable Universal Life Insurance

A variable universal life (VUL) policy is similar to a whole life in that it is for the entirety of your life and has a built-in savings component. The main difference is that this savings component has an investment subaccount that is similar to a mutual fund and is invested on your behalf.

You can lose cash value when investing in a VUL.

Understanding Indexed Universal Life Insurance

An indexed policy is the same as a VUL, but the key difference is that instead of a mutual fund being used to invest your cash value, the investment is put into an index. This is very similar to an index annuity.

The cash value can be linked to one or multiple indexes, such as the S&P 500 or NASDAQ.

Investing in an entire index allows investors to automatically diversify their portfolios. You also can’t lose your cash value in an indexed policy. You’ll be able to rely on a nice rate of return with an indexed universal life plan.

Let’s imagine, for a minute, that you have cash that is stashed away in a CD or a savings account. You could, instead, put this money into an indexed policy that earns a 2% to 5% return (it can also be much higher).

And you have access to 100% of this money at any time that you need it.

If you die, all of this money and the death benefit will go to your beneficiaries.

When talking about retirement planning, life insurance is a small piece of the plan. You can leverage the right type of account for its tax advantages and even grow your money while still having access to it.

The added perk is that the death benefit is dispersed to your beneficiaries.

Life insurance is fully underwritten, meaning that the insurer will want to look at your medical history. If you have some medical issues but they’re under control, you might still pass-through underwriting.

For example, let’s say that you have high blood pressure. You might assume that you won’t be able to pass through the underwriting. Medications can help get your blood pressure under control, and if it’s under control, you have a good chance of getting approved.

We believe everyone should consider life insurance, but for some people, this type of insurance won’t make sense. The best thing that you can do is educate yourself on the benefits of life insurance and determine if it’s the right choice for you.

We can also discuss your options and help you determine if life insurance is the right choice for you. 

For some people, it may not be part of their retirement plan. But for other clients, life insurance can provide you with peace of mind that you’re leaving your family with financial security when you’re gone.

Click here to schedule a free introduction call with us today.

What Is A ROBO Advisor?

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ROBO advisors seem to be everywhere today. They’ve really gained attention in the past few years, so many of our clients have been asking questions about them. We’re here to talk about ROBO advisors in a nonbiased manner so that you can decide what the best option for you is when trying to secure your retirement.

What is a ROBO Advisor?

The term “ROBO” should give you a clue that a ROBO advisor is a computer that helps manage your investments for you. When you work with one of these advisors, you’ll add in your own instructions, and then let the advisor do all of the work for you.

You don’t have to think about your investments, but the advisor is also somewhat limited because it’s listening to your instructions and not going outside of those parameters.

ROBO advisors won’t go out and recommend that you drop Apple and invest in Amazon, for example, because it’s not an active advisor. The main way that these platforms work is through what is called allocation.

What is Allocation?

ROBO advisors work on the computer. You’ll open an account, go through a risk assessment, and then the advisor will use this information to create an asset allocation ruling. You may be put into a moderate portfolio, based on the assessment, which may mean an allocation of 60%/40%.

What does this mean?

Your portfolio may be broken down into:

  • 60% equities
  • 40% fixed income / bonds

And then within this allocation, the platform may decide that you have 60% in equities allocation, which may include:

  • 10% small cap
  • 10% mid cap
  • 10% large cap

You may have committees, international stocks and so on. ROBO advisors will select all of these investments for you. Over time, potentially every quarter, the program will look at your portfolio and readjust as necessary.

For example, let’s assume that stocks performed well and now your small cap is at 12% of your allocation. The platform will balance this out, based on the original allocation ruling, so that your portfolio is rebalanced.

ROBO advisors are algorithmic, and they will rebalance almost perfectly based on your input.

If you’re a person that is just starting their retirement planning or someone that doesn’t want to work with an advisor, the ROBO advisor may be a good option for you because it listens to your input from start to finish.

But these platforms are also limited.

What ROBO Advisors Can’t Do

ROBO advisors are advancing, but they’re still limited in what they can do. Let’s assume that the market is crashing, the platform will just keep rebalancing. The advisor doesn’t understand what is going on in the world.

Let’s assume that you have a large holding of oil stocks, the platform won’t know to adjust out of these holdings if a huge stockpile is entering the market and devaluing the price of oil.

Your advisor won’t consider:

  • The financial goals you set
  • You wanting to travel and needing income every month
  • You wanting to leave money to your grandkids

ROBO advisors only work inside of the allocation ruling created, so if the market drops or another pandemic hits, you can lose a lot of money in the process.

Human advisors, on the other hand, will consider your goals and having to draw from multiple sources of retirement. A human advisor will look at the entire picture of your retirement to determine:

  • What income is coming in
  • How a pension can benefit your retirement
  • If your current lifestyle may lead to not having enough assets for retirement
  • Etc.

Retirement planning has a lot of moving parts. It’s difficult for a ROBO advisor to consider that you’ll need money for long-term care because the platform isn’t designed to provide this type of advice.

What if your expense plan needs adjustments? What can you afford? Do you need some form of insurance?

These “what if” scenarios can’t be answered with a computer. A person can provide this advice to you and think about your needs.

But that doesn’t mean that a ROBO advisor is bad either.

If you believe that a “buy and hold” strategy is the best option for you, a ROBO advisor is extremely cost effective. An advisor can then help you with other things, such as insurance or long-term care needs.

Both a ROBO advisor and a human have their advantages, and it’s important to consider all of these advantages and disadvantages to determine what type of advisor is best for you.

Want more great retirement planning information?

Click here to listen to our Secure Your Retirement Podcast.

How To Have a Successful Retirement Plan

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Retirement planning is on a lot of people’s minds, but they don’t know where to start. It can be overwhelming reading blogs, watching videos on retirement or even listening to our podcast and trying to implement everything that you learn.

But today, we’re going to break down how to create a successful retirement plan by following four key components that we use when helping others secure their retirement.

4 Key Components of a Successful Retirement Plan

1. Retirement Financial Plan

Your retirement financial plan is the foundation of your retirement. If you don’t have a plan, the rest of the components don’t work. You’re likely familiar with coming up with a plan for saving for vacations or paying off debt, but a retirement financial plan is a lot different.

Why?

You’re likely not working and making income in the same way that you did in your 20s, 30s, 40s, 50s, and early 60s. We normally work with clients about 10 years before their retirement to put a plan in place that works for them.

Retirement Financial Plan Outline

A well-thought-out plan is the foundation of your retirement. You need to put your plan together, which will include:

Goals

What would you like your retirement to be? When do you want to retire? What lifestyle do you want to have? Do you want to travel? Do you want to have a second home? These should all be part of your goals.

Assets

You’ve worked hard, and you’ve acquired a lot of assets. You need to list all of your assets including 401(k), IRA, real estate and so on.

Income

Will your assets be able to provide you with income? You’re not working, so you need income to cover your expenses. How much money do you need? You need to consider your basic cost of living, your wants and any legacy money that you want to leave behind or gift to others.

You need to determine how your assets will provide an income.

Income will also include things like:

  • Social security
  • Pension plans

Social security is a big one because there is a lot of talk that the program will run out of money. If you retire early, you’ll receive less money from social security which may or may not be acceptable for your retirement plans.

You need to do a full valuation of social security to find what’s right for you. Waiting until 70 for retirement may not be what you want to do.

What Ifs

There are a lot of “what if” scenarios which can be both good and bad. A few things that you’ll want to think about are:

  • What if you planned to spend a certain amount of money and spend too much? What if you’re spending less than projected?
  • What if you want to travel for the first ten years of retirement?
  • What if long-term care is needed? Long-term care is very expensive.
  • What if your spouse dies? Will you be financially stable?

A plan can really help you because it’s on paper and can be referred to time and time again. You can look over your plan and determine if you’re on track to reach your retirement goals or not.

Your plan doesn’t need to be massive – a smaller plan is great.

We start with this retirement plan because it leads directly into the next point.

2. Investment Strategy with Risk Management

You have assets and savings, and instead of letting your money sit, it’s important to invest it so that it can grow. Buy and hold strategies are great when you’re young, but as you get closer to retirement, it’s vital that you focus on risk management.

There’s a time to invest, and there’s also a time when you need to secure your retirement by pulling money out of the stock market or other investments.

We always run our clients through a risk conversation where we learn how much risk our clients are willing to take with their money. For example, let’s assume the following:

  • You have $1 million in investments
  • Your portfolio is down 20% – $200,000

A lot of people get nervous losing $200,000, so they say that they can better handle a 10% loss. Every individual is different. You need a portfolio that looks at your risk tolerance. The last thing many people want to do is lose 30% or 40% of their retirement overnight.

Other people have more than enough money stashed away, and they rather seek the highest returns possible because a 30% loss won’t impact their retirement.

Another thing to consider – taxes.

3. Retirement Tax Strategy

Taxes follow you forever, but there are ways that you can lower your tax burden. You need to think about your assets because there are a lot of different asset taxes:

  • Pre-tax
  • After-tax
  • No-tax

For example, you can have $1 million in your 401(k), but you have to pay taxes on this money which impacts it significantly.

Roth accounts are tax-free.

Gains are taxed with some assets, such as dividends and not others.

You may want to convert to a Roth through a Roth conversion where you pay the taxes prior to converting and allow the account to grow tax-free.

It’s very important to spend time understanding how you can shield yourself as much as possible from taxes. A CPA or accountant can help, and we actually have these professionals on retainer so that if our clients have a question we can’t answer, the tax professional can.

4. Estate Planning

Finally, the last piece of the puzzle is your estate plan. You want to make sure that you have:

  • Beneficiaries setup
  • Beneficiaries named and updated
  • A will in place
  • Healthcare power of attorney
  • Durable power of attorney

A durable power of attorney is very important because even if you’re married, there are certain retirement accounts that can only be owned by a person. Let’s assume that your wife is in a coma, and you rely on her accounts to pay your bills.

Without a durable power of attorney, you cannot access these certain accounts.

These are simple documents that everyone that is entering into retirement should have in place.

Just imagine if you had all of these four key elements in place for your retirement. Would you have peace of mind in retirement? A lot of people will say “yes.”

That’s what a solid plan offers – peace of mind.

Want to learn ways to secure your retirement? Listen to our Secure Your Retirement Podcast to get started.

Want to dive in and learn more about how we can help you secure your retirement? Feel free to schedule a complementary call with us. Just 15 minutes of your time can help you on the path to retirement.

Is Cryptocurrency Safe for Your Retirement Plan?

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Cryptocurrency is alluring for a lot of investors. It’s hard to overlook Bitcoin and Ethereum rising to $65,000 and $4,300 (1) in the last few months. But these crypto currencies have also dropped to $36,977 and $2,587 at the time of writing this article.

For someone in retirement or close to retirement, crypto may or may not be a smart addition to their portfolio.

Where Cryptocurrency Stands for Current Retirees or Someone Close to Retirement

A lot of our clients are interested in Bitcoin and other cryptocurrencies. There are stories of people investing $10,000 in these investments that are now worth $1 million or more. High returns on investment are always going to raise a person’s interest.

There are also some people saying that crypto could replace the dollar, which would make it less volatile and a lot more attractive,

The question is, for someone that is close to or in retirement, could you afford losing 40% or 50% of your investment in a month?

Crypto can provide massive returns, but you’re also entering an investment that can cause you to lose a lot of money overnight. Talks of regulating crypto in the past month sent a bunch of the currencies spiraling downward.

Your goal and objective when investing in cryptocurrency will be the determining factor in whether or not to add it to your portfolio. The last thing you want to do is secure your retirement only to see your portfolio suffer massive overnight losses.

Assessing Risk and How Risk Pertains to Crypto

Cryptocurrencies have a lot of risk because it’s still so new. You have strong backers like Elon Musk that can push Bitcoin high with one announcement and cause it to tumble with another.

Government regulations are also another issue.

All of this uncertainty adds to the risk of investing in cryptocurrency. Are you willing to lose 30% to 50% of your portfolio in a few weeks? If not, then cryptocurrency isn’t for you.

When we talk to our clients and run a risk assessment, people are typically willing to risk 5% to 10% of their portfolio. Let’s look at a real-world example. Let’s assume that you have $1 million in a retirement portfolio:

  • 5% to 10% loss would be $50,000 to $100,000
  • 30% to 50% loss would be $300,000 to $500,000

Wiping out $300,000 of your retirement can be very difficult for a person to withstand. For most people that have been investing and building up a retirement account throughout their adult life, jeopardizing retirement for crypto is simply unthinkable.

There are also some clients that are willing to put maybe 10% of their portfolio, or $100,000 using the example above, into crypto. If the person is comfortable losing this money, they may think that the risk is worth the reward.

How Much of Your Retirement Portfolio Are You Willing to Risk?

If you’re willing to take a risk on the unknown, you’ll want to ask yourself: how much should I risk? You can funnel 2% of your portfolio, or $20,000 into crypto, and keep the rest in low-risk investments.

While you stand to gain and lose a lot, most people are fine with diversifying into crypto if the potential loss isn’t devastating.

If you can afford to lose the money, you should have the mentality that you’re willing to lose it all. Perhaps you don’t mind losing $1,000 or even $100,000, and if this is the case, you can definitely invest in crypto.

We wouldn’t recommend a significantly high percentage of your retirement account being used for crypto because you worked hard for your retirement.

And if you do decide to invest in crypto, what is the upside? Will you pull out of the investment if you see 50% returns, or will you keep your money in the investment for the long-term? There are a lot of questions to ask yourself.

In the ideal world, we advise our clients that have worked so hard to secure their retirement that they should only invest amounts that they’re comfortable losing. The last thing you want is to not have enough money to retire because of a riskier investment.

If you’re close to retirement, are you willing to lose your retirement to crypto?

For most people, the answer is no.

Understanding Crypto Well Enough

Retirement planning is a learning experience. If you want to secure your retirement, you need to understand the investment vehicles that you’re choosing. In our opinion, and through experience, we only invest in things that we understand.

Sure, cryptocurrency has a lot of upsides, but if you don’t understand it, you don’t know what it can be applied to in the real world.

You don’t need to be a teacher of crypto, but we do recommend that if you want to add this investment to your portfolio, be sure that you know how they work.

Crypto is “created.” The coins are mined using processing power. The concept is all digital and essentially made up. But through backing, these digital currencies have been able to grow.

A lot of people want a decentralized currency, and this has given crypto its basis for existing.

You need to ask how crypto works.

  • What is crypto mining?
  • How are transactions logged?
  • What’s the future of crypto?

If you can answer these questions, then you may find that cryptocurrency is a good option for you. 

For our clients, we aim for stability in their portfolios. We certainly don’t want to lose all of a portfolio overnight, and we minimize risk with a diversified portfolio. Cryptocurrency is one of the investments that can lose a significant amount of value overnight, so there’s little that you can do to adjust your portfolio to reduce imminent risk,

You can go to bed at night and wake up with 30% of losses.

As advisors, we don’t invest our clients’ money in crypto because there’s far too much risk. We’ve had some clients that want to take on that risk and will invest themselves. But for us, with a long-term retirement plan in mind, we only recommend investing in small amounts of crypto at this time.

If a major government backs a digital currency or creates their own, we may change our mind completely on cryptocurrency investing.

But for now, we only recommend investing in crypto if it’s money that you can lose.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Resources

  1. https://economictimes.indiatimes.com/markets/cryptocurrency/bitcoin-rises-4-eyes-37000-ethereum-gains-8/articleshow/83114422.cms